1. Chapter 10
Skyline College

2. Who Is an Employee?
An employee is a person who is hired by and works under the direction of the employer.
Works under the control of the employer
Uses equipment provided by the employer
Works hours that are set by the employer
In most situations, an “employee” works in the employer’s facility, using the employer’s tools, under the employer’s direct supervision. An independent contractor works unsupervised, usually away from the employer’s facility.

3. An independent contractor is one who is paid by a company to carry out a specific task or job but is not under the direct supervision or control of the company.
Does not work under the direct supervision or control of the company
Furnishes his or her own tools or equipment
Sets his or her own working hours
No withholding for independent contractors
No payroll tax for independent contractors
An independent contractor works unsupervised, usually away from the employer’s facility.

4. How do employees differ from independent contractors?
Works under the control and direction of the employer
Does not work under the direct supervision or control of the company
Uses tools or equipment provided by the employer
Furnishes his or her own tools or equipment
Works certain hours that are set by the employer
Employees differ from independent contractors in several ways.
Sets his or her own working hours

5. The Fair Labor Standards Act of 1938
Also referred to as the Wage and Hour Law
Applies only to firms engaged directly or indirectly in interstate commerce
Sets a minimum hourly rate of pay and maximum hours of work per week to be performed at the regular rate of pay
Employees who work beyond 40 hours a week are entitled to
“time and a half.”
The Fair Labor Standards Act fixes minimum wage and the maximum number of hours or work per week to be performed at the regular rate of pay.

6. Time and a half
Time and a half is the rate of pay for an employee’s work in excess of 40 hours a week.
It is one and one-half times the regular hourly rate of pay.
Hours worked in excess of 40 must be paid at one and one-half times the regular rate of pay.

7. Social Security Tax
Social security tax is a tax imposed by the Federal Insurance Contributions Act (FICA) and collected on employee earnings to provide retirement and disability benefits.
Social security tax is a tax imposed by the Federal Insurance Contributions Act (FICA) and collected on employee earnings to provide retirement and disability benefits. Social security tax provides benefits for employees and their families, including: retirement benefits or pension benefits for the dependents of a deceased worker and benefits for the worker and the worker’s dependents when a worker is disabled.

8. Social Security Tax
As of 2005
The amount of social security tax is determined by:
rate
6.2%
earnings up to a calendar year earnings base
$90,000
The rate (6.2 percent) has remained constant in recent years.
The earnings base has increased each year.

9. Medicare Tax
Medicare tax is a tax on employees and employers to provide medical care for the employee and the employee’s spouse after each has reached age 65.
This tax is also paid by both the employer and the employee.

10. Medicare Tax The amount of Medicare tax is determined by:
As of 2005
The amount of Medicare tax is determined by:
rate
1.45%
earnings
total earnings
The rate (1.45%) has remained constant in recent years.
The Medicare tax does not have an earnings base limit.
The current Medicare tax rate is 2.9% % is withheld from the employee’s paycheck and the other 1.45% of the employee’s tax is paid by the employer.

11. social security tax (6.2% up to an earnings base limit)
Gross
Wages
Employee Earnings
Out of an employees gross wages, medicare is withheld at the rate of 1.45% and social security is withheld at the rate of 6.2%.
Medicare tax (1.45%)
social security tax (6.2% up to an earnings base limit)

12. Let’s assume an employee earns $100,000 in the calendar year.
FICA Tax
Employee (withheld) 6.2% X $90,000 = $5,580.00
Medicare Tax
Employee (withheld) 1.45% X $100,000 = $1,450.00
Social Security tax withheld on only the first $90,000 would be $5,580 and medicare tax withheld on the entire $100,000 would be $1,450.

13. Social Security Tax and Medicare Tax
Tax payable
Employee 1 $50,000
Employee 2 $90,000
Employee 3 $100,000
$5,580.00
$5,580.00
Social Security Tax
Medicare Tax
$3,100.00
$50,000 X 6.2% = $3,100.00
Only the first $90,000 of gross annual wages is subject to social security tax. Anything earned after that is not subject to the tax.
$90,000 X 6.2% = $5,580.00
Earnings 
$90,000 X 6.2% = $5,580.00

14. Social Security Tax and Medicare Tax
$5,580.00
$5,580.00
Social Security Tax
Tax payable
Medicare Tax
$3,100.00
$50,000 X 1.45% = $725.00
For medicare taxes however, there is no wage base maximum so all wages would continue to be taxed at the 1.45% rate.
$1,450.00
$1,305.00
$90,000 X 1.45% = $1,305.00
$725.00
Earnings 
$100,000 X 1.45% = $1,450.00
Employee 1 $50,000
Employee 2 $90,000
Employee 3 $100,000

15. Federal Income Tax
Employers are required to withhold an estimated amount
of federal income tax from the employee’s earnings.
Employers are required to withhold from the employee’s earnings.

16. social security tax (6.2% up to an earnings base limit)
Gross
Wages
Employee Earnings
federal income tax
Federal income tax is an additional withholding tax which comes out of an employee’s gross wages.
Medicare tax (1.45%)
social security tax (6.2% up to an earnings base limit)

17. State and Local Taxes
Most states, and many local governments, may require employers to withhold income taxes from employees’ earnings to prepay the employees’ state and local income taxes.
The rules are generally almost identical to those governing federal income tax withholding.
Employees subject to federal income tax withholding are also subject to state and/or local income tax withholding in most states. There are a few states which don’t require employees to pay state income taxes (Alaska and Texas for example.)

18. Employer’s Payroll Taxes and Insurance Costs
Employers withhold social security and Medicare taxes from employees’ earnings.
In addition, employers pay social security and Medicare taxes on their employees’ earnings.
Employers are also required to pay:
Federal unemployment tax
State unemployment tax
Workers’ compensation insurance
Employers must pay the following payroll taxes: State Unemployment Tax (SUTA), Federal Unemployment Tax (FUTA), Social Security Tax (1/2 of employee’s), Medicare Tax (1/2 of employee’s).

19. social security tax (6.2% up to an earnings base limit)
The employer matches the social security tax withheld
from the employee’s earnings.
Employee Earnings
The employer matches the social security tax withheld from the employee’s earnings.
federal income tax
Medicare tax (1.45%)
social security tax (6.2% up to an earnings base limit)

20. social security tax (6.2% up to an earnings base limit)
The employer matches the Medicare tax withheld
from the employee’s earnings.
Employee Earnings
The employer matches the Medicare tax withheld from the employee’s earnings.
federal income tax
Medicare tax (1.45%)
social security tax (6.2% up to an earnings base limit)

21. Let’s assume an employee earns $100,000 in the calendar year.
FICA Tax
Employee (withheld) 6.2% X $90,000 = $5,580.00
Employer % X $90,000 = $5,580.00
Total %
The total social security tax paid on the employees wages are $5,580 paid by the employee and $5,580 paid by the employer.

22. Federal Unemployment Tax
FUTA
Federal unemployment taxes (FUTA) are taxes levied by the federal government against employers to benefit unemployed workers.
Only employers pay federal unemployment tax. The employee does not pay this tax.

23. State Unemployment Tax
SUTA
State unemployment taxes (SUTA) are taxes levied by the state government against employers to benefit unemployed workers.
State unemployment taxes (SUTA) are taxes levied by the state government against employers to benefit unemployed workers.

24. Unemployment Rate Taxes
The FUTA and SUTA tax rates are applied to FUTA wages:
The federal tax rate is 6.2 percent.
This can be reduced by the state tax rate (5.4 percent for many states).
This text assumes that the taxable earnings base per employee is $7000 per year.
The FUTA tax applies to only the first $7,000 of each employee’s earning for the year, and the FUTA rate is 6.2%.

25. The SUTA-FUTA Connection
SUTA tax rate %
4.8%
5.4%
FUTA tax rate %
(Less) SUTA tax rate (5.0)
Net FUTA tax rate
Total taxes %
6.2%
(4.8)
1.4
6.2%
(5.4)
0.8
The employer reduces the FUTA rate by the amount of the rate of SUTA, up to a maximum of 5.4%, so the FUTA rate can be as low as 0.8% ( 6.2% - 5.4% )

26. social security tax (6.2% up to an earnings base limit)
Gross
Wages
unemployment taxes (6.2% up to a taxable earnings base)
Employee Earnings
federal income tax
The employer is responsible for paying all of the SUTA & FUTA, ½ of the Social Security and ½ of the Medicare tax.
Medicare tax (1.45%)
social security tax (6.2% up to an earnings base limit)

27. Workers’ Compensation Insurance
Workers’ compensation insurance is the insurance that protects employees against losses from job-related injuries or illnesses, or compensates their families if death occurs in the course of employment.
In states where it is required, employers pay for insurance that will reimburse employees for losses resulting from job-related injuries or will compensate their families in the event of death in the course of their employment.

28. Employee Records Required by Law
Federal laws require that certain payroll records be maintained. For each employee the employer must keep a record of:
Employee’s name, address, social security number, and date of birth
Hours worked each day and week, and wages paid at the regular and overtime rates (certain exceptions exist for employees who earn salaries)
Cumulative wages paid during the year
Amount of income tax, social security tax, and Medicare tax withheld for each pay period
Proof that the employee is a United States citizen or has a valid work permit
The employer must keep a record of: Employee’s name, address, social security number, and date of birth, hours worked each day and week, wages paid at the regular and overtime rates, cumulative wages paid during the year, amount of income tax, social security tax, and Medicare tax withheld for each pay period, proof that the employee is a United States citizen or has a valid work permit. Failure to keep proper payroll records can result in hefty penalties for businesses.

29. Meet Kent Furniture and Novelty Co.
Kent Furniture and Novelty Co. imports furniture and novelty items to sell over the Internet.
The firm is a sole proprietorship owned and managed by Sarah Kent.
Kent Furniture and Novelty Co. has five employees.
Payday is each Monday.
We are going to use Kent Furniture and Novelty Company as an example in this section. Employees are subject to social security tax, Medicare tax, and federal income tax withholding.

30. Computing Total Earnings of Employees
The first step in preparing payroll is to compute the gross wages or salary for each employee. There are several ways to compute earnings.
Hourly rate basis
Salary basis
Commission basis
Piece-rate basis
The first step in preparing payroll is to compute the gross wages or salary for each employee. There are several ways to compute earnings.

31. Hourly rate basis is a method of paying employees according to a stated rate per hour.
Commission basis is a method of paying employees according to a percentage of net sales.
Hourly rate basis is a method of paying employees according to a stated rate per hour.

32. Piece-rate basis is a method of paying employees according to the number of units produced.
Salary basis is a method of paying employees according to an agreed-upon amount for each week, month or other period.
Piece-rate basis is a method of paying employees according to the number of units produced. This is generally used in a manufacturing plant.

33. Determining Pay for Hourly Employees
Two pieces of data are needed to compute gross pay for hourly rate basis employees:
number of hours worked during the payroll period
rate of pay
Two pieces of data are needed to compute gross pay for hourly rate basis employees: the number of hours worked during the period, and the rate of pay.

34. Hours Worked Many businesses use time clocks for hourly employees.
Each employee has a time card and inserts it in the time clock to record the times of arrival and departure.
The payroll clerk collects the cards at the end of the week.
Time sheets and Time cards are common examples of how employers keep track of how long their hourly employees work.

35. Computing Gross Pay
The gross pay for hourly employees for the week ended January 6 is determined as follows:
Total hours Rate of pay Gross pay
Alicia Martinez 40 hours X $ = $400.00
Jorge Rodriguez 40 hours X $ = $380.00
George Dunlap 40 hours X $ = $360.00
Gross pay is calculated by multiplying the number of hours times the rate of pay.

36. Overtime
George Dunlap earns $9.00 per hour. He worked 45 hours. He is paid 40 hours regular rate of pay and 5 hours at time and a half.
Therefore, Dunlap’s gross pay adds up to:
Regular earnings: hours X $ $360.00 = =
Overtime earnings: 5 hours X $ $
Gross Pay $427.50
If overtime exists because the employee worked over 40 hours, the employee would get paid at the rate of one and one half times the normal hourly rate for the time over 40 hours.

37. Withholdings for Hourly Employees Required by Law
Recall that federal law requires employers to make three deductions from employees’ gross pay:
FICA (social security) tax
Medicare tax
Federal income tax withholding
Employers will withhold social security, medicare and federal income tax from an employees wages.

38. Tax-exempt Wages
Earnings in excess of the base amount ($90,000 as of 2005) are not subject to FICA withholding.
If an employee works for more than one employer during the year, the FICA tax is deducted and matched by each employer.
When the employee files a federal income tax return, any excess FICA tax withheld from the employee’s earnings is refunded by the government or is applied to payment of the employee’s federal income taxes.
If an employee works for more than one employer, FICA taxes are deducted and matched by each employer. When the employee files a federal income tax return, any excess tax is refunded. (The employer, however would not receive any refund.)

39. Social Security Tax
To determine the amount of social security tax to withhold, multiply the taxable wages by the social security tax rate and round off to the nearest cent.
Cindy Taylor $ X % = $24.80
Jorge Rodriguez X % =
George Dunlap X % =
Cecilia Wu X % =
Employee Gross pay Tax rate Tax
Total social security tax $109.59
A total of $ is withheld from all wages of employees for the period.

40. Medicare Tax
To compute the Medicare tax to withhold from the employee’s paycheck, multiply the wages by the Medicare tax rate, 1.45 percent.
Alicia Martinez $ X 1.45% = $ 5.80
Jorge Rodriguez X % = $ 5.51
George Dunlap X 1.45% = $ 6.19
Cecilia Wu X 1.45% = $ 8.12
Employee Gross pay Tax rate Tax
Total Medicare tax $25.62
Remember that there is no limit on the wages subject to medicare tax. In this pay period, $25.62 was withheld from all employees wages for medicare tax

41. The amount of federal income tax to withhold from
an employee’s earnings depends on:
Earnings during the pay period
Length of the pay period
Employee’s instructions:
Marital status
Number of withholding allowances
A substantial portion of the federal government’s revenue comes from the income tax on individuals. Withholding depends on earnings, length of pay period, marital status, and number of allowances.

42. Withholding Allowances
In the simplest circumstances, a taxpayer claims a withholding allowance for:
The taxpayer
A spouse who does not also claim an allowance
Each dependent for whom the taxpayer provides more than half the support during the year
As the number of withholding allowances increases, the amount of federal income tax withheld decreases.
An allowance generally refers to the number of exemptions the person is going to claim at the end of the year on their income tax return (Form 1040).

43. The Employee’s Withholding Allowance Certificate, Form W-4 is a form used to claim exemption (withholding) allowances.
The wage-bracket table method is a simple method to determine the amount of federal income tax to be withheld using tables provided by the government.
To claim withholding allowances, each employee completes an Employee’s Withholding Allowance Certificate, Form W-4.

44. Computing Federal Income Tax Withholding
The wage-bracket table method is the most common way to compute the federal income tax withholding.
The wage-bracket tables are in Publication 15, Circular E or online on
The wage-bracket table method is the most common way to compute the federal income tax withholding. Employers choose the proper table based on pay period and employee’s marital status.

45. Wage-Bracket Table Method
Use the following steps to determine the amount to withhold:
Choose the table for the pay period and the employee’s marital status.
Find the row in the table that matches the wages earned. Find the column that matches the number of withholding allowances claimed on Form W-4. The income tax to withhold is the intersection of the row and the column.
Once the correct table has been chosen, the employer finds the line on the table that covers the wages earned, then the accountant follows that line to the column with the number of withholding allowances claimed.

46. Cecilia Wu is married, claims two withholding allowances, and earned $560 for the week.
The tax to withhold is $30; this is where the row and column intersect.
For Cecilia Wu, $30 is withheld from her paycheck for federal income tax.
Go to the table for married persons paid weekly.
Find the line covering wages between $560 and $570.
Find the column for two withholding allowances.

47. Other Deductions Required by Law
Most states and some local governments require employers to withhold state and local income taxes from earnings.
In some states employers are also required to withhold unemployment tax or disability tax.
The procedures are similar to those for federal income tax withholding.
Apply the tax rate to the earnings, or use withholding tables.
Most states and some local governments require employees to withhold state and local income taxes as well.

48. There are many payroll deductions not required by law but made by agreement between the employee and the employer.
Some examples are:
Group life insurance
Group medical insurance
Company retirement plans
Bank or credit union savings plans or loan repayments
United States savings bonds purchase plans
Stocks and other investment purchase plans
Employer loan repayments
Union dues
Can you think of any other types of deductions which you could voluntarily have withheld from your paycheck?

49. Determining Pay for Salaried Employees
A salaried employee earns a specific sum of money for each payroll period.
Exempt employees are salaried employees who hold supervisory or managerial positions who are not subject to the maximum hour and overtime pay provisions of the Wage and Hour Law.
The office clerk at Kent Furniture and Novelty Company earns a weekly salary gross amount of $480 for the week.

50. Withholdings for Salaried Employees Required by Law
The procedures for withholding taxes for salaried employees is the same as withholding for hourly employees.
Apply the tax rate to the earnings or use withholding tables.
The taxes withheld from salaried employees are determined by the same methods as those of hourly employees.

51. Recording Payroll Information for Employees
A payroll register is a record of payroll information for each employee for the pay period.
A payroll register is a record of payroll information for each employee for the pay period.

52. Completing the Payroll Register
PAYROLL REGISTER WEEK BEGINNING January 1, 20--
NAME NO. OF MARITAL CUMULATIVE NO. OF RATE
ALLOW STATUS EARNINGS HRS.
Martinez, Alicia M
Rodriguez, Jorge S
Dunlap, George S
Wu, Cecil M
Booker, Cynthia S
(A) (B) (C) (D) (E)
For Alicia Martinez, she has one withholding allowance and she is married. She worked 40 hours this week and is paid $10 per hour.
Enter the employee’s name (Column A), number of withholding allowances and marital status (Column B), and rate of pay (Column E).

53. Completing the Payroll Register
PAYROLL REGISTER WEEK BEGINNING January 1, 20--
NAME NO. OF MARITAL CUMULATIVE NO. OF RATE
ALLOW STATUS EARNINGS HRS.
Martinez, Alicia M
Rodriguez, Jorge S
Dunlap, George S
Wu, Cecil M
Booker, Cynthia S
(A) (B) (C) (D) (E)
The Cumulative Earnings column (Column C) shows the total earnings for the calendar year before the current pay period. Since this is the first payroll period for the year, there are no cumulative earnings prior to the current pay period.
Since this is the first payroll period for the year, there are no cumulative earnings prior to the current pay period.

54. Completing the Payroll Register
PAYROLL REGISTER WEEK BEGINNING January 1, 20--
NAME NO. OF MARITAL CUMULATIVE NO. OF RATE
ALLOW STATUS EARNINGS HRS.
Martinez, Alicia M
Rodriguez, Jorge S
Dunlap, George S
Wu, Cecil M
Booker, Cynthia S
(A) (B) (C) (D) (E)
In Column D enter the total number of hours worked in the current period. This data comes from the weekly time sheets.
Note that all employees were paid for eight hours on January 1, a holiday.
Alicia Martinez worked 40 hours this week. This includes the eight hours on the January 1st holiday.

55. Completing the Payroll Register
PAYROLL REGISTER WEEK BEGINNING January 1, 20--
EARNINGS
NAME REGULAR OVERTIME GROSS CUMULATIVE
AMOUNT EARNINGS
Martinez, Alicia
Rodriguez, Jorge
Dunlap, George
Wu, Cecil
Booker, Cynthia
2, , ,247.50
(A) (F) (G) (H) (I)
Using the hours worked and the pay rate, calculate regular pay (Column F), the overtime pay (Column G), and gross pay (Column H).
Using the hours worked and the pay rate, Alicia earned regular pay of $400 and $0 of overtime. Her total Gross amount then is $400.

56. Completing the Payroll Register
PAYROLL REGISTER WEEK BEGINNING January 1, 20--
EARNINGS
NAME REGULAR OVERTIME GROSS CUMULATIVE
AMOUNT EARNINGS
Martinez, Alicia
Rodriguez, Jorge
Dunlap, George
Wu, Cecil
Booker, Cynthia
2, , ,247.50
(A) (F) (G) (H) (I)
Calculate the cumulative earnings after this pay period (Column I).
Since this is the first paycheck of the year, her cumulative gross earnings is $400.

57. Completing the Payroll Register
AND ENDING January 6, PAID January 8, 20--
TAXABLE WAGES DEDUCTIONS
NAME SOCIAL MEDICARE FUTA SOCIAL MEDICARE
SECURITY SECURITY
Martinez, Alicia
Rodriguez, Jorge
Dunlap, George
Wu, Cecil
Booker, Cynthia
2, , ,
(A) (J) (K) (L) (M) (N)
The Taxable Wages columns shows the earnings subject to taxes for social security (Column J), Medicare (Column K), and FUTA (Column L). Only the earnings at or under the earnings limit are included in these columns.
Alicia Martinez’s social security taxable wages are $400 and her wages subject to medicare are also $400. Her wages subject to FUTA tax is $400. The amount withheld from her paycheck for social security is $24,80 and medicare withheld is $5,80.

58. Completing the Payroll Register
AND ENDING January 6, PAID January 8, 20--
DEDUCTIONS
NAME SOCIAL MEDICARE INCOME HEALTH
SECURITY TAX INSURANCE
Martinez, Alicia
Rodriguez, Jorge
Dunlap, George
Wu, Cecil
Booker, Cynthia
(A) (M) (N) (O) (P)
The Deductions columns show the withholding for social security tax (Column M), Medicare tax (Column N), federal income tax (Column O), and medical insurance (Column P).
Income tax withheld for Alicia is $ She had no health insurance withheld.

59. Completing the Payroll Register
AND ENDING January 6, PAID January 8, 20--
DEDUCTIONS DISTRIBUTION
NAME INCOME HEALTH NET CHECK OFFICE SHIPPING
TAX INSURANCE AMOUNT NO SALARIES WAGES
Martinez, Alicia
Rodriguez, Jorge
Dunlap, George
Wu, Cecil
Booker, Cynthia
, ,767.50
(A) (O) (P) (Q) (R) (S) (T)
Subtract the deductions (Columns M, N, O, and P) from the gross earnings (Column H). Enter the results in the Net Amount column (Column Q). This is the amount paid to each employee.
After all of the deductions, her net pay check is $

60. Completing the Payroll Register
AND ENDING January 6, PAID January 8, 20--
DEDUCTIONS DISTRIBUTION
NAME INCOME HEALTH NET CHECK OFFICE SHIPPING
TAX INSURANCE AMOUNT NO SALARIES WAGES
Martinez, Alicia
Rodriguez, Jorge
Dunlap, George
Wu, Cecil
Booker, Cynthia
, ,767.50
(A) (O) (P) (Q) (R) (S) (T)
Enter the check number in Column R.
She is issued check no

61. Completing the Payroll Register
AND ENDING January 6, PAID January 8, 20--
DEDUCTIONS DISTRIBUTION
NAME INCOME HEALTH NET CHECK OFFICE SHIPPING
TAX INSURANCE AMOUNT NO SALARIES WAGES
Martinez, Alicia
Rodriguez, Jorge
Dunlap, George
Wu, Cecil
Booker, Cynthia
, ,767.50
(A) (O) (P) (Q) (R) (S) (T)
The payroll register’s last two columns classify employee earnings as office salaries (Column S) or shipping wages (Column T).
The business separates the payroll into two separate expense accounts—office salaries and shipping wages.

62. The Payroll Register
When the payroll data for all employees has been entered in the payroll register, total the columns.
After the payroll register is completed, the columns are totaled and the register is proven.

63. Recording Payroll
Recording payroll information involves two separate entries:
Record the payroll expense
Pay the employees
We will make two separate journal entries.

64. AND ENDING January 6, 20-- PAID January 8, 20--
DEDUCTIONS DISTRIBUTION
NAME INCOME HEALTH NET CHECK OFFICE SHIPPING
TAX INSURANCE AMOUNT NO SALARIES WAGES
Martinez, Alicia
Rodriguez, Jorge
Dunlap, George
Wu, Cecil
Booker, Cynthia
, ,767.50
(A) (O) (P) (Q) (R) (S) (T)
The information in the register is used for recording the payroll expense.
GENERAL JOURNAL PAGE 1
DATE DESCRIPTION POST DEBIT CREDIT
REF.
20--
Jan
Office Salaries Expense
Shipping Wages Expense ,767.50
The total of the Office Salaries column is debited to Office Salaries Expense in the general journal entry. The same thing happens with the total of the Shipping Wages column.
Social Security Tax Payable
Medicare Tax Payable
Employee Income Tax Payable
Health Insurance Premiums Payable
Salaries and Wages Payable ,840.57
Payroll for week ending Jan. 6

65. A separate liability account is set up for each deduction.
AND ENDING January 6, PAID January 8, 20--
DEDUCTIONS
NAME SOCIAL MEDICARE INCOME HEALTH
SECURITY TAX INSURANCE
Martinez, Alicia
Rodriguez, Jorge
Dunlap, George
Wu, Cecil
Booker, Cynthia
(A) (M) (N) (O) (P)
Each type of deduction is credited to a separate liability account.
A separate liability account is set up for each deduction.
GENERAL JOURNAL PAGE 1
DATE DESCRIPTION POST DEBIT CREDIT
REF.
20--
Jan
Office Salaries Expense
Shipping Wages Expense ,767.50
We use the total of the various DEDUCTIONS columns to credit the new liability accounts for the withholdings. New liability accounts are: Social Security Tax Payable, Medicare Tax Payable, Employee Income Tax Payable, and Health Insurance Premiums Payable.
Social Security Tax Payable
Medicare Tax Payable
Employee Income Tax Payable
Health Insurance Premiums Payable
Salaries and Wages Payable ,840.57
Payroll for week ending Jan. 6

66. AND ENDING January 6, 20-- PAID January 8, 20--
DEDUCTIONS DISTRIBUTION
NAME INCOME HEALTH NET CHECK OFFICE SHIPPING
TAX INSURANCE AMOUNT NO SALARIES WAGES
Martinez, Alicia
Rodriguez, Jorge
Dunlap, George
Wu, Cecil
Booker, Cynthia
, ,767.50
(A) (O) (P) (Q) (R) (S) (T)
Net pay is credited to the liability account, Salaries and Wages Payable.
GENERAL JOURNAL PAGE 1
DATE DESCRIPTION POST DEBIT CREDIT
REF.
20--
Jan
Office Salaries Expense
Shipping Wages Expense ,767.50
The Net Amount column is credited to the Salaries and Wages Payable account in the general journal entry.
Social Security Tax Payable
Medicare Tax Payable
Employee Income Tax Payable
Health Insurance Premiums Payable
Salaries and Wages Payable ,840.57
Payroll for week ending Jan. 6

67. Paying Employees
Most businesses pay their employees by check or by direct deposit.
By using these methods, the business avoids the inconvenience and risk involved in dealing with currency.
Almost all businesses pay salaries/wages of employees by check.

68. General Journal Format
Wages Paid
On January 8 Kent Furniture and Novelty Co. wrote five checks for payroll, Check numbers
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
Jan. 8
Salaries and Wages Payable ,840.57
Cash ,840.57
To record payment of salaries and wages for week ended Jan. 6
Cash is credited for the net take-home pay.
General Journal Format